The Cost of Freemium Games: an Economy All Its Own

Even though it is highly debatable as a monetization system, the economics of “freemium” are taking over the landscape of mobile gaming. A mash-up of “free” and “premium,” this model suggests the best of both worlds. But nothing’s really free. The anchor of the freemium business stems from converting free users to premium in-app purchases. The built-in engagement you’ll find in most mobile games of today encourages higher usage and even higher returns. In fact, a recent report notes that free-to-play games earn more than $60 per user per month. A deeper look into the economics of the ever-popular freemium model are illustrated in this infographic (below).

How to monetize mobile gaming products and services is arguably the first question that comes to mind when talking about free-to-play game development. Looking at the numbers, nearly 65% of the top 100 grossing apps in App Store were generated by the freemium business model. More or less 72% of all income from the App Store came from freemium mobile games. The study also found that the main profit drivers come from game perks like extra lives, extra features, virtual goods and personalization services.

Gaming powers-up freemium business

Gaming has taken the mobility and social spaces by storm. Out of the 25 revenue-generating apps noted in the infographic, 22 are gaming applications. All of the top 5 revenue-generating games in the App Store are free-to-play. The numbers are greatly influenced by avid gamers who play multiple times per day. In 2011, 8% of this group spent more than $50 for gaming apps, while 12% and 14% cashed out $26-$50 and $11-$25 respectively. Nearly 30% paid $1-$10.

In-App purchases

Avid gamers have shown their power to monetize through in-app purchases. The same study revealed that 51% of avid gamers have made at least one in-app purchase for the following reasons: access new features or levels, improve performance or speed up progress and personalize or decorate characters. The numbers will continue to rise and consequently, in-app purchases are could outpace pay-per-download revenues this year, according to ABI Research.

Mark Beccue, senior analyst for mobile services, shares his insights on this trend, noting how Google and developers can make or break the positive prediction on gaming in-app purchases, saying,

“As a revenue model, in-app purchase is very limited today. The vast majority of current in-app revenue is being generated by a tiny percentage of people who are highly-committed mobile game players. We don’t believe the percentage of mobile game players making in-app purchases will grow significantly, so for in-app purchase revenues to grow, mobile developers other than game developers must adopt it.”

Helping developers to further monetize cross-platform apps through direct carrier billing, PaymentOne introduced PayOne HTML5 API. This tool will manage a more effective payment course for developers and monetize their offerings athwart all platforms and devices by way of a secured and fast “charge it to my mobile phone bill” payment method.

With Zynga facing global rivals and diversifying its services beyond Facebook, social mobile gaming is on a roll. Its $1 billion IPO valuation says a lot how the industry’s luck favored a barely 5-year old company. Late last year Electronic Arts acquired KlickNation to keep up with the industry’s quickening pace. Zynga posted a strong fourth quarter in 2011, amidst massive net loss estimated to be at $435 million. Social gaming is also fuelling Peak Games interest as they acquire a Saudian company, Kammelma, dominate two largest emerging markets in the world at present: Turkey and MENA (Middle East North Africa).

Premium Research

Wikibon argues strongly against Revolution towards a 3rd platform. The conclusion from this analysis is that applications will evolve; conversion should be avoided like the plague. The greatest opportunity is to continuously adapt today's operational applications by the addition of real-time or near real-time analytics applied directly to the current organizational processes and applications that support these processes. This is likely to translate to the greatest value to most organizations, and where possible avoid the risks of converting systems. The study of organizations that have applied real-time analytics to their current operational systems have shown incredible improvements in lower costs and greater adaptability. Business and IT executives should understand the enormous potential for adding decision automation through real-time analytics to current operational applications in their organizations. New technologies should be judged by their ability to support real-time analytics applied to operational systems, and supporting incremental improvement over time.

In a recent web-based survey conducted by Wikibon, 300 North American enterprises whom had either been utilizing, or considering the adoption of public cloud, answered questions regarding IaaS (Infrastructure as a Service) perceptions and usages. These questions varied in topic but were centered around an examination of which workloads were best suited for usage in the public cloud. This research examines a few additional key insights that shed some light on the growing IaaS world.

Today's Technology infrastructure management is largely non-differentiated and wasteful. Technology executives must re-think the strategic role of human capital and begin to implement new ways to consume IT as a service. This post draws on the learnings of senior executive Alan Nance from Royal Philips who is dogmatic in its approach to transforming its infrastructure to a service model.

There have only been two successful volume introductions into the marketplace in the last 50 years - DRAM and NAND flash. There has to be a clear volume case with good economics for 3D XP to be able to gain a foothold in consumer products. Without volume in the consumer space, there is unlikely to be much volume traction in the enterprise space. CIOs, CTOs and enterprise professionals should take a wait and see stance, and monitor the adoption of 3D XP in the consumer and military spaces. If and when there is volume production for 3D XP, enterprise adoption should start about two years later.

The use of open source software continues to accelerate and expand in the marketplace, especially in areas where technology is significantly disrupting established business models. IT organizations should be actively seeking to understand how open communities operate, how different licensing models work, and how they can be more actively engaged with both the vendors and communities that are shaping open source software.

CIOs understand that a clear cloud strategy is critical for IT today. Wikibon believes the biggest mistake organizations can make is converting major applications into the public cloud (including SaaS) without thinking about the implications to their existing business process workflows. Wikibon recommends that IT develop and implement a hybrid cloud strategy using the existing management workflows and compliance processes for both the public and private cloud components in the hybrid cloud.

In 2014, Wikibon defined a new category "Server SAN" that sits at the intersection of software-defined storage, hyperscale methodologies and converged infrastructure. This article is the executive summary of primary research that gives the status of the market, examines the vendor ecosystem, lays forth the revenue and 10 year forecast and gives direction for expansion beyond simple "hyperconverged infrastructure". This information is available for public consumption, the full research is available to Wikibon clients.

In this research paper, Wikibon looks back at the introductory Server SAN research, adjusts the Server SAN definition to include System Drag, and increases the speed of adoption of Server SAN based on very fast adoption from 2012 to 2014. The overall growth of Server SAN is projected to be about a 23% CAGR from 2014 to 2026, with a faster growth from 2014 to 2020 of 38%. The total Server SAN market is projected to grow to over $48 billion by 2026. The traditional enterprise storage market is projected to decline by -16% CAGR, leading to an overall growth in storage spend of 3% CAGR through 2026. Traditional enterprise storage is being squeezed in a vice between a superior, lower cost and more flexible storage model with Enterprise Server SAN, and the migration of IT towards cloud computing and Hyperscale Server SAN deployments. Wikibon strongly recommends that CTOs & CIOs initiate Server SAN pilot projects in 2015, particularly for applications where either low cost or high performance is required.

If containers are at the center of a shift in how applications are developers and delivered, and their pace of growth and change is unprecedented in IT history, this could have a massive ripple effect on both suppliers and consumers of the ecosystem of IT technologies.